Outcome Bias

What is it?

Outcome bias is the tendency to evaluate the quality of a decision based on its outcome rather than on the information available and reasoning applied at the time the decision was made. A good decision can have a bad outcome due to unforeseeable events, and a bad decision can succeed through luck. Yet we often judge decision-makers by results alone. This creates several problems: it punishes thoughtful risk-taking when luck doesn't cooperate, it rewards reckless decisions that happen to succeed, and it prevents learning the right lessons from experience. In medicine, a surgeon who makes the correct choice given available information but loses a patient may be judged more harshly than one who made a questionable call but got lucky. In investing, fund managers are often rated by returns without accounting for the risks taken to achieve them. Outcome bias is closely related to hindsight bias: once we know the outcome, it colors our judgment of the decision process. Combating outcome bias requires separating decision quality from outcome quality, evaluating decisions based on process and reasoning at the time, writing down your thinking before outcomes are known, and accepting that in uncertain environments, good decisions will sometimes fail.